Creative Financing for Distressed Properties: Subject-To, Seller Financing & More

When your property situation doesn't fit neatly into a traditional sale, creative financing strategies can open doors you didn't know existed. These structures have been used for decades in real estate — but most homeowners in distress never hear about them.

Subject-To (Taking Over Mortgage Payments)

In a "subject-to" deal, a buyer purchases your property and takes over your existing mortgage payments — but the mortgage stays in your name. This works well when you have little or no equity but need to stop making payments. The buyer gets a property without qualifying for a new loan, and you get relief from the payments.

Best for: Properties with little equity, underwater mortgages, homeowners who need payment relief fast.

Caution: The mortgage stays in your name, which means if the buyer stops paying, it affects your credit. Legal protections should be built into the agreement.

Seller Financing (You Become the Bank)

Instead of the buyer getting a bank loan, you finance the purchase yourself. The buyer makes monthly payments directly to you, with interest. You retain a lien on the property until it's paid off — similar to how a bank holds a mortgage.

Best for: Homeowners who want monthly income rather than a lump sum, properties that are paid off or have significant equity.

Lease Option (Rent-to-Own)

You lease your property to a tenant who has the option (but not obligation) to purchase it at a predetermined price within a set timeframe. The tenant typically pays an option fee upfront and above-market rent, with a portion going toward the purchase price.

Best for: Properties in decent condition that aren't selling on the traditional market, homeowners who can wait for the full sale.

Wraparound Mortgage

A wraparound mortgage is a form of seller financing where the new loan "wraps around" the existing mortgage. The buyer makes payments to you at a higher interest rate, and you continue making payments on the original mortgage at the lower rate. The difference is your profit.

Best for: Experienced parties with legal guidance, properties with favorable existing mortgage terms.